Insight
On June 3, 2020 the United States Senate passed a bill called the “Paycheck Protection Flexibility Act” regarding Paycheck Protection Program (“PPP”) loans. This bill will now be sent to President Trump who is expected to sign it. If enacted, this bill’s provisions will likely be helpful to actual and potential PPP borrowers. This legislation relaxed certain key requirements for PPP loans and should provide additional flexibility to borrowers.
The bill’s main points are:
- Current PPP borrowers can elect to extend the eight-week required spending period for PPP funds to 24 weeks or keep the original eight-week period. New PPP borrowers will have a 24-week spending period, but this period can’t extend beyond Dec. 31, 2020. This provision should make it easier for more borrowers to reach full, or almost full, forgiveness of the loan amount.
- The payroll expenditure requirement is reduced to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. PPP borrowers are currently required to reduce the amount of a PPP loan that is eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but they don’t totally lose forgiveness if the 75% threshold isn’t met. This is an area where the Senate bill is different from the House bill. Some Republican Senators have said that changes to this provision of the Senate bill may be able to be made to restore the sliding scale when the SBA adopts enabling regulations for this legislation, but this is not guaranteed. All actual and potential PPP borrowers should monitor this item very carefully and work with their legal and accounting advisors to confirm how it is resolved and what they will need to do to comply with the final requirements. Failure to comply may prevent a borrower from receiving forgiveness of a PPP loan.
- PPP borrowers can use the 24-week period to restore their employee levels and wages to pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, 2020 which is a change from the prior June 30, 2020 deadline.
- PPP borrowers now have five years to repay the loan instead of two years. The annual interest rate remains at 1%.
- The legislation includes two new exceptions that may permit borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their employee workforce. Previous requirements allowed borrowers to exclude employees who turned down good faith offers to be rehired at the same terms as existed prior to the pandemic. The new bill allows PPP borrowers to adjust their calculations because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020 levels due to restrictions related to COVID-19.
- The bill allows PPP borrowers to make additional deferrals of payroll tax payments.
If you have any questions, please contact Gunster Technology & Emerging Companies practices leader, Robert White.
